Saturday, 7 April 2012

Ukraine Plans To Offer Ruble Bonds For Debt Payments Without IMF

KIEV, Ukraine -- Ukraine plans to sell bonds denominated in Russian rubles and doesn’t need to restart a $15.6 billion International Monetary Fund loan to make debt payments, said an adviser to President Viktor Yanukovych.The former Soviet state wants to raise 98 billion hryvnia ($12 billion) this year, two thirds of which will probably be bought domestically, Iryna Akimova, the first deputy chief of Yanukovych’s staff, said in an interview yesterday.

The Finance Ministry has regularly sold bonds denominated dollars and euros in the domestic market after delaying a $1.5 billion Eurobond offering planned for March.

“The government has already made some successful attempts on the domestic market,” Akimova said in Washington.

“Now they’re working on government bonds denominated in rubles to use in the Russian market and there are rather good perspectives.”

Ukraine, whose IMF program was frozen last March after the government refused to raise domestic natural-gas prices to trim the budget deficit, faces 42.27 billion hryvnia ($5.19 billion) in foreign debt payments in 2012.

To bolster state coffers, it is negotiating with Russia to lower the price it pays for the fuel by a third, which would cut losses at state energy company NAK Naftogaz.

A rally in Ukraine’s dollar-denominated bonds due in 2021 cut yields 20 basis points, or 0.20 percentage point today, to 10.02 percent, compared with 10.49 percent on March 30, which was the highest in more than two months.

The cost of insuring Ukrainian government debt against non- payment for five years using credit-default swaps was 839 basis points yesterday, down from a two-month high of 857 on March 30, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.A basis point is 0.01 percentage point.Household gas prices are “a serious, serious issue” and tariffs “should come closer to the market-oriented level,” Akimova said, predicting some increases toward year-end.

“On what scale, we’ll see.”

Yanukovych’s Party of Regions, which has lost support in opinion polls, faces parliamentary elections in October.

Ukraine is seeking to pay about $250 per thousand cubic meters of Russian gas, compared with $416 last quarter, and wants to boost transit volumes through its pipelines to Europe after its neighbor began rerouting some supplies through the Nord Stream pipeline and via another link across Belarus.

In return, Russia is seeking a stake in Ukraine’s transit pipelines.

It also wants Yanukovych to sign up to a Customs Union it created with Belarus and Kazakhstan.

Ukraine has said joining the union would harm its chances of signing an Association Agreement, including a free-trade pact, with the European Union.The policies used by Russia are aimed at applying “political pressure” on Ukraine, according to Akimova, who says the country opposes joining the Customs Union.

“Energy issues are always very politicized.”

The economy needs 27 billion cubic meters of gas in 2012, about half the 52 billion it’s contractually obliged to purchase, according to Akimova.

“The current gas agreement is unfair both in terms of price and volumes,” she said.

Ukraine is seeking to roll over a $2 billion loan from Russian lender VTB Group (VTBR) that matures in June, Akimova said, adding that the nation may seek further financing from other Russian banks.

Economic growth in Ukraine will probably slow to 3 percent this year, below a 3.9 percent government forecast, because of weaker global demand for exports such as steel, said Akimova, who’s in charge of economic programs and represents Yanukovych in the Cabinet.